The United States' inflation rate has reached an all-time high. The US stock market has begun to show signs of slowing, potentially driving the economy into recession and even stagflation. Since the 1970s, the United States has never experienced stagflation. A sluggish economy with rising prices and few or no job opportunities is referred to as stagflation.
Both Main Street and Wall Street have a gloomy vibe about them. The Federal Reserve raised the federal funds rate for the third time this year to combat the country's record-high inflation. Inflation surged 1% higher due to the steepest increase in inflation rates in 28 years, resulting in the highest inflation rate of 8.5 percent in four decades.
Furthermore, in its June report, the World Bank warned that the economy could see delayed growth, creating financial instability.
So will The US encounter any recession in the future?
The chief economist and The Wall Street Bulls are receiving a plethora of muddled and contradictory messages.
So, what circumstances could push the United States into a recession?
Let's take a look at some of the elements at play.
1. Russia-Ukraine Conflict
The confrontation between Russia and Ukraine has had an enormous impact not just on the US economy, but also on the world economy. The cost of energy has risen significantly. Oil prices have surged to $105 per barrel for the first time since 2014. Increased energy costs accumulate in a customer's daily life, causing inflation to rise to a new level. Those added expenses might be a drag on the economic growth and might further play an important role in increasing the inflation rate by 0.2% or 0.6%.
2. No more smooth flow of money
When the pandemic broke out, all governments started increasing the flow of money and flooded the market with freshly printed money. The stock market had risen to its all-time high. But as the pandemic moved to its final stages, the US Fed began to withdraw all the inflated funds.
3. Trade and Supply chain
Even though Russia and Ukraine account for a minor percentage of US imports, the US, unlike its European partners, is a big natural gas exporter and should keep its pricing control in check. The rapid rise in the prices of everything, from food to automobiles, has already put a strain on the American consumer. Any further escalation in the Russian-Ukraine conflict could result in an increase in inflation rates, which could lead to a recession.
Economists' views on the inflation
Carl Weinberg of High-Frequency Economics believes Russia will move to Ukraine to put the economy of Europe and possibly the United States on "wartime footing," resulting in a shortage of products and an increase in the price cycle. He also suggested that Russia will attempt a cyber-attack on the US or European transactional models to counter the sanctions placed on it.
Goldman Sach's chairman Lloyd Blankfein addressed the rising inflation and stated that the rising interest rate and market fluctuations are all indicators of high risk and consumers should be prepared to face all the consequences. However, he also commented that the Federal Reserve has some powerful tools and thinks the recession can be stopped.
The likelihood of a US recession in the coming year has been progressively increasing, according to a recent Bloomberg poll study, making it impossible to track. To give it some numbers, Given the unanticipated occurrences that take place throughout that year, a U.S. recession is normally 15% in that year.
Although Andrew Hunter, a senior economist at Capital Economics, indicated that the Fed has no plans to raise interest rates for three years, this is based on the assumption that the strongest economic growth will have no inflation pressure, which they believe is incorrect.
Nomura economists Aichi Amemiya and Robert Dent state that “With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in the fourth quarter of 2022 is now more likely than not,”
Despite the fact that the Federal Reserve is unconcerned about the impending recession, to keep inflation under control, the Federal Reserve would raise interest rates and make asset performance adjustments, all while relying on robust policy guidance.
However, it will lower the country's growth costs.
Jay Powell, the Fed chair, has stated that to control the inflation the central bank may cause some pain, leading to a softish landing that sees an increase in the unemployment rate by some amount.
President Joe Biden’s view
Amid rising inflation and economic volatility, the President of the United States addressed the American people's worries, stating that the American people are depressed after two years of continuous struggles with the epidemic and economic volatility. He also discussed the issues that families were having because of the rising cost of gasoline.
He informed the people that America is better prepared than any other nation on the earth to handle growing inflation after listening to all of the economist's worries and cautions.